I'm a thirty-year veteran of Wall Street and an outspoken critic of ineffective regulation and an advocate for economic and political sanity. Following a career as an in-house lawyer and industry regulator, I am now in private practice representing member firms, registered persons, Whistleblowers, and defrauded investors. I publish the RRBDlaw.com and the BrokeAndBroker.com websites.

Wall Street Regulation Goes Hollywood

If you have the time or the stomach lining left to plow through the latest round of Wall Street prosecutions, actions, and amended pleadings, have at it. Me? I’m truly fed up with all of it. Just too much lipstick on too many pigs. Too little. Too late. Too self-serving. Too much that smacks of politics rather than substantive prosecution. And in the end, the big hogs, the Citigroups, the Merrill Lynches, the Morgan Stanleys, the UBSes– well, they all just write out checks to pay the fines and tell us that it’s all in the past. Then, of course, someone from the very same agency that prosecuted the case gets a plum job as an independent consultant or in-house executive in charge with overseeing the settlement. Gotta love it!

Breathtaking House of Cards Architecture

On October 1, 2012, the United States Attorney for the Southern District of New York filed a 33-count Superseding Indictment, which names names and events that go beyond the allegations in the prior November 2010 Indictment — most notably, we now learn that the alleged conspiracy to defraud Bernard L. Madoff Investment Securities, LLC (“BLMIS”) clients is no longer cited as having first begun around 1992 but now seems to have its origins in the early 1970s. As such, the misconduct expands to cover the period of time when Madoff was the Chair of NASDAQ. For those of you still desiring more about Bernie Madoff and his machinations, here’s the link to a 152-page Superseding IndictmentUnited States of America vs. Daniel Bonventre, Annette Bongiorno, Joann Crupi a/k/a “Jodi,” Jerome O’Hara, and George Perez (S8 10-Cr-228 (LTS)).

Manhattan U.S. Attorney Preet Bharara said: “As we have said repeatedly since this breathtaking fraud was first discovered four years ago, we will not rest until all the alleged participants and enablers are made to answer for their conduct. With the new charges we announce today against these five previously indicted defendants, the architecture of Madoff’s house of cards and each defendant’s alleged role in it becomes clearer.”

You know, I really, really have to bite my tongue and clench my jaw when I read Bharara’s quote. Did some unemployed Hollywood scriptwriter churn out this quote? Breathtaking fraud? First discovered four years ago . . . first discovered? The architecture of Madoff’s house of cards?

With all due respect to Mr. Bharara, maybe the SEC and his office first discovered this fraud only four years ago but I hardly think that the rumors and charges against Bernie and BLMIS were dormant prior to that time. But, hey, we can just forget about Harry Markopolos’s 2000 communications with the SEC, right? But why split hairs — four years, twelve years . . . it’s just an eight-year discrepancy.

What the OIG Report discloses are numerous SEC failures to timely investigate the breathtaking Madoff case. By way of a quick refresher course, let me quote from the OIG’s Report:

The OIG investigation did find, however, that the SEC received more than ample information in the form of detailed and substantive complaints over the years to warrant a thorough and comprehensive examination and/or investigation of Bernard Madoff and BMIS for operating a Ponzi scheme, and that despite three examinations and two investigations being conducted, a thorough and competent investigation or examination was never performed. The OIG found that between June 1992 and December 2008 when Madoff confessed, the SEC received six substantive complaints that raised significant red flags concerning Madoff’s hedge fund operations and should have led to questions about whether Madoff was actually engaged in trading. Finally, the SEC was also aware of two articles regarding Madoff’s investment operations that appeared in reputable publications in 2001 and questioned Madoff’s unusually consistent returns.

In the Financial Industry Regulatory Authority’s (“FINRA’s”) September 2009

The Madoff case also highlights the need to improve the exchange of information within FINRA and between the SEC and FINRA, including the sharing of information about potentially fraudulent conduct at member firms. Finally, the Madoff case demonstrates the need for FINRA to clarify the extent of its jurisdiction, and to more aggressively exercise that jurisdiction.

It will be interesting to see whether the Superseding Indictment with all its breathlessness finally uncovers whether any misconduct occurred at Madoff’s FINRA member firm and whether FINRA also failed to timely uncover such indications; or whether the self-regulatory organization is correct in asserting that it was largely victimized by Madoff’s machinations and the alleged lack of communication from the SEC. Perhaps the now revealed architecture of Madoff’s house of cards will help elucidate this still nagging concern as to how to fairly apportion blame among regulators?

A.G. Schniederman Production Starring A.G. Schniederman

Then of course, we’re also learning that New York Attorney General Eric Schneiderman just filed a civil fraud lawsuit involving the sale of mortgage-backed securities against JP Morgan Chase & Co. Well, okay, not actually against JP Morgan Chase but truly against the issuer Bear Stearns & Co., which was acquired in 2008 by JPM when the world as we knew it was coming to an end.

The oddity of this New York State case is that we all thought that there was a high-powered federal task force supposed to be handling these matters — in fact, AG Schneiderman is the co-chair of the Residential Mortgage-Backed Securities Working Group . And, not to be indelicate here, but whatever happened to all the promised criminal cases? This RMBS working group seems to have produced as its first case more whimper than bang.

So, lemme see if I got this — NYAG Schneiderman is filling in here for the SEC and Department of Justice? And this case is filed civilly rather than criminally? May I ask why?

Of course, there are more than a few voices wondering whether New York State has yet another AG with his eye on higher office — just consider that nary a press release emanates from AG Schneiderman’s office that doesn’t begin” A.G. Schneiderman . . .” I mean, okay, not that every politician doesn’t want to give the impression the he or she is doing all the work that’s actually the byproduct of the grunts and minions whose names just don’t seem to make it into the press release headlines; but in the case of the current NYAG, this publicity mill has been taken to extremes. If nothing else, it undermines credibility and is all too reminiscent of a prior NYAG whose career crashed and burned after similar headline hogging.

Alas, modern day Wall Street regulation is all about publicity. We’ve gone Hollywood. It’s about an entourage and p.r. and spin. Have your people call my people. Ciao. Let’s do lunch. Air kiss. Air kiss.

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A sad commentary on the lack of oversight and greed on many levels society. The investors deserve much better. We as taxpayers have paid the price as those who turned their heads and or actively participated get their wrists slapped, take their money and run.

Here’s a documentary that is not Hollywood, and actually done very well with a quant and tech talking from the other side. Yes agree it’s time to replace Shapiro with someone with a background in computer science soon, those who rule the code rule the world and have all the money…the algorithms move money and we are so naive.

It’s actually Chapter 44 on my series called “The Attack of the Killer Algorithms” and anyone who has written queries and computer code absolutely gets this and I do my best to try to explain to the layman too but it’s a battle that is not seen as this all runs on servers 24/7.

Madoff victims have realized for some time now that this must have been a ponzi scheme from the start – in the ’60′s.

And we’re also dealing with the fact that SIPC’s area of specialty has been to keep its broker members happy – by keeping their yearly assessments as small as possible – by finding ways to distort the law- consistently denying customer status to all but a small percentage of broker ponzi scheme victims so SIPC’s broker members don’t have to contribute to victim reimbursement.

All of which was laid out years ago in Gretchen Morgenson’s NY Times article re: SIPC’s machinations in 2000 or 2001.

And the only thing that’s changed since then is that SIPC now has the nerve to go up against the SEC in the Stanford case – just to keep brokers from having to contribute to victims when brokers steal.